tv Nightly Business Report PBS July 2, 2012 4:30pm-5:00pm PDT
>> this is n.b.r. >> susie: good evening. i'm susie gharib, tom is off. wall street kicks off the second half with nearly $20 billion in deals, on this merger monday. a historic fraud settlement today: glaxo-smith-kline will pay $3 billion to settle drug safety charges. and americans spend billions of dollars a year dining out. we look at restaurants, as we continue our "foodie craze" series. that and more tonight on "n.b.r."! it's starting to look like "merger monday" is back again. today over $17 billion in deals were announced, a strong start on this first day of the third quarter. bristol-meyers squbb is buying amylin for about $7 billion.
germany's linde agreed to acquire home health firm acquire home health firm lincare for nearly $5 billion. chipmaker micron technology is buying a japanese rival; dell is buying quest software, and ever- bank is picking up one of g.e.'s business lending units. with all these deals on tap, erika miller gets the outlook for mergers over the next six months. >> reporter: conditions in much of u.s. have been hot and dry. and we're not just talking about the weather. the first six months of the year were the weakest for wall street deal-making in nearly a decade. >> even with the spate of deals that occurred today. we are still trending for possibly the first down year for u.s. m&a since 2009. >> reporter: it's not for lack of cash. corporate america has over a trillion dollars sitting in the bank, representing over 70 weeks of net income. >> m&a is very confident-driven. and i think most of the global corporations are not confident
in their business models. >> reporter: they're concerned about the weak global economy, given the crisis in the eurozone, and slowing growth in emerging markets. here in the u.s., growth is stagnant, and many companies are waiting to see the results of the november elections. so, bottom line: don't read too much into today's flurry of deals. >> i can't say that there's any bullish indicator, other than the fact that we are heading into the summer months, which are traditionally slow. >> reporter: no one is predicting a big surge in m&a activity anytime soon. not only is it a presidential election year, but the pace of deal-making is closely tied to the health of the economy, and that's still far from certain. erika miller, "n.b.r.," new york. >> susie: still ahead, tonight's "word on the street." "show me." jill malandrino will explain, she's with the street.com. "nightly business report" is brought to you by:
captioning sponsored by wpbt >> susie: a mixed finish on wall street today, on new data showing american factories slowed sharply in june, for the first time in three years the institute of supply management's june manufacturing index fell into contraction territory: 49.7. any reading below 50 indicates slowing. by the market close, the dow fell eight points, but the nasdaq rose 16, helped by today's deals, and the s&p added three points. our guest tonight is expecting the major stock indexes to be flat for the rest of the year. he's nick colas of convergex group. nick, nice to see youment so why don't you think stocks will do as well in the second half as they did the first six months of the year? >> well, the first six
months were really a tremendous performance for u.s. stocks. we got 8 to 12% depending on the index you track, with a world of a lot of uncertainty. the back half of the year will have the u.s. facing its own challenges, the fiscal cliff you talked about in your hoe in the past, the elections provide some uncertainty, and the federal debt limit, for all the uncertainty you found in europe, i think the u.s. is going to get its share of uncertainty if the back half of this year which leaves us neutral on stocks for the back half of 2012. >> susie: and you're not including europe on that uncertainty list. do you feel that what happened at this european summit last week is setting europe on to a strong path or could they still muddle around? >> it does seem very much like europe will muddle around. i would say we were in a better position than 2 or 3 or four months ago. a lot of the smart clients i talked to feel strongly that germany looked into the abyss during the potential for a greek exit and decided
they didn't like that picture very much so they will work larder to make the european situation stabilize in the back half of the year so while it's not off the table entire-- entirely it seems like europe is to the going to be as much of an issue as some of the u.s. discussion and tomorrowics outlined at the top. >> susie: it seems also, nick that a lot of investors are focusing more on the u.s. economy rather than what is going on in europe. today's manufacturing data that we just reported on, also we've got the jobs report coming out on this friday. how important is this employment report on friday and what are you expecting. what kind of numbers? >> yes, a very important number. because we have seen a range of some good news in the u.s. economy based around housing and some bad news recently based around employment. the friday jobs report where most analysts expect a number to come in roughly 100,000 incremental jobs added, unemployment of roughly 8.2%, basically unchanged from last month, would indicate that we are still in somewhat of a slowing mode. any number below 100,000 means we're actually
contracting. we're not adding enough jobs to offset the new population growth in the u.s. so it is going to be a really critical number on friday. >> susie: a lot of people using that word contracting in terms of the context in what you just said to you in the labor market, but also about that manufacturing it data. are you in the camp that is worried about a recession or not? >> i absolutely am worried about a recession. i don't see all the makings of one just yet, primarily because we till still have a very aggressive federal rezfb helping the economy with forward with a low-interest rate and continued stimulus. so i'm not yet thinking it say locked in guarantee but mi worried that these numbers are coming in shallow, coming in weak, and the federal reserve will have to act sometime between now and the end of the year to keep us from going into that recession. >> susie: we also have earning season coming up. a lot of question marks of what we are going to be hearing from careerest on those analyst calls. what should we be listening for? >> i will tell you, listening to the previews of some of the calls, companies
that have already come out and talked about their second-quarter results it seems like we will hear a lot about the uncertainty in europe and a lot about the uncertainty that that drives into how c.e.o.s and cfos make corporate lie decision. in other words, it might be a slowing europe or contractionary europe makes them cautious in the back half of the year. one more reason why you are not seeing the m & a activity you talked about at the top of the show. c.e.o.s don't have a lot of confidence. i think will you see that come through on second quarter earnings calls. >> susie: all right. a lot to think about. nick, thanks so much. nick colas, chief market strategist at convergex group. >> thank you.
>> susie: a record-setting fine today for glaxosmithkline. the drug company is pleading guilty and will pay $3 billion to settle charges it illegally marketed drugs, and withheld safety information from regulators. that big fine makes this the largest health care fraud settlement in u.s. history. as darren gersh reports, the punishment covers wrong-doing related to seven different drugs. >> reporter: federal prosecutors say the criminal charges and huge fines imposed on glaxosmithkline will send a message to the entire industry. >> we will not tolerate healthcare fraud, and in every instance where we uncover it, we will use all of our available tools to hold those responsible to account. >> reporter: today's settlement covers civil and criminal violations that played out over more than a decade. glaxo agreed to plead guilty to two counts of misbranding drugs. from 1998 to 2003, glaxo pushed
doctors to prescribe the anti- depressant paxil for children even though its own studies showed the drug was not effective in patients younger than 18. around the same time, the company illegally marketed the anti-depressant wellbutrin even hiring a p.r. firm to help sell the drug for off-label uses including weight loss. glaxosmithkline also pled guilty to one count charging it withheld safety information about the diabetes drug avandia. in addition to pleading guilty, glaxo will pay $1 billion in criminal penalties. the company will also pay $2 billion to settle civil charges it improperly promoted eight drugs. prosecutors say glaxosmithkline bribed physicians to sell drugs. >> using every imaginable form of high-priced entertainment from hawaiian vacations to
doctors millsions of dollars to go on speaking tours to a european pheasant hunt to madonna concerts and this is just to name a few. these allegations and others are detailed in the papers fed and unsealed today. >> reporter: in a statement, glaxosmithkline c.e.o. sir andrew witty said the charges "originate in a different era for the company, they cannot and will not be ignored. on behalf of g.s.k., i want to express our regret and reiterate that we have learnt from the mistakes that were made." dr steven nissen published the key study that linked avandia to a higher risk of heart attack. at its peak, he says avandia sales hit $3.3 billion a year. >> so that $3 billion fine was less than one year's sales of the drug. i think the public can draw their own conclusions about whether the penalties were big enough or not. >> reporter: altogether, drug companies have paid more than $10 billion to settle claims related to improper marketing. with today's settlement, the industry may have purchased more certainty. >>s otr companies finalize their claims against them, i think the industry can move beyond this overhang of risk of litigation, and i think that moving forward will get investors looking at the pipeline, looking at some of the patent exposure that these firms still have.
overall, we think the industry is undervalued and we do think the pipelines are improving. >> reporter: in past, drug companies have considered fines for improper marketing a cost of doing business. regulators say today's case shows the roadmap has changed now that the cost of getting caught is so much higher. darren gersh, "n.b.r.," washington. >> susie: saying his firm's reputation has taken a devastating blow, barclay's chairman marcus agius has resigned. his move comes just days after the firm agreed to settle charges of rigging inter-bank lending rates. the chairman says he's taking responsibility for the behavior that lead to last week's settlement with u.s. and british regulators. the investigation into libor rates continue, so far no other banks have been charged, but citigroup, j.p. morgan chase, and h.s.b.c. are all under investigation. airbus. the big european jet maker is wheels down in alabama, announcing plans today for its first u.s. factory. airbus executives were flanked by gulf coast politicians as they unveiled plans to build the narrow-body a-320 plane in mobile, alabama. the factory will cost $600
million, and add 1,000 jobs, doubling airbus' u.s. workforce by the year 2016. this is the company's second plant outside europe, the other one is in china. airbus' c.e.o. says no one should be surprised by today's announcement. >> airbus has indeed european roots, but we have long since grown, into a truly global company with key sites in every part of the world, and of course we are already right at home here, in the united states of america. >> susie: the a-320 is airbus' most popular plane and it's key to the company's strategy of competing u.s. rival boeing.
>> susie: some legal wrangling overseas for apple today. first, italy. that country is threatening to shut down apple's italian operations, if the company doesn't offer a free two-year warranty on all of its products, as demanded by italian law. the country's competition and market authority is giving apple 30 days to act. so far, no comment from apple. meanwhile, a cnese court says apple has reached a deal allowing it to use the name "ipad" in china. apple will pay $60 million to a chinese maker of computer monitors, that had patented the same name. >> susie: apple shares rose on that settlement, up more than $8 to $592 a share. meanwhile, it was a slow start to july and the second half of 2012 for stock investors, despite a hefty dose of that merger activity.
the s&p 500 flip-flopped between positive and negative territory, tacking on its fifth straight "up" day for the index. volume here at the big board was a lonely 734 million shares, no surprise given the july 4 holiday on wednesday. over at the nasdaq volume was also light, with 1.8 billion shares changing hands. of the ten s&p sectors, telecom services was the biggest winner, up 1.5%, while industrials topped the loser list, dropping just under 1%. powering telecom higher today were shares of sprint nextel. it announced it would host mozilla's new firefox operating system. firefox is seen as a rival to google's android software. sprint's stock rang up a 4% gain today. don't forget the telecom giant was a standout in the second quarter, too, its shares adding more than 30%. among the dow industrials,
dupont led the decliners. jefferies cut its rating on the stock to a hold from buy. dupont shares fell 2% to close at $49.43, and that weak data on american manufacturing was also cited as a reason for the selling. moving now to today's deal activity today, and how the stocks of the marrying companies fared. shares of amylin gained a healthy 9% today and are now trading close to a four year high. that's after agreeing late friday to be bought by bristol- myers squibb. bristol myers stock rose a fraction, still trading close to a ten-year high. germany's lincare breathed new life into shares of respiratory provider lincare. the stock gained on that multi- billion dollar all cash deal. in technolgoy pairings, micron gained 4% after the chipmaker agreed to buy its japanese rival. on the other hand, dell slipped 1% after acknowledging it was buying quest software. quest edged up slightly to close
the deal had been rumored since last week, and involved another bidder led by a private equity group. speaking of "private", shares of best buy surged higher today on rumors of a buyout offer that would take the troubled electronics retailer private. late this afternoon, we learned the buyout talks are reportedly in very early stages, and that founder and c.e.o. richard schulze is unlikely to present an offer soon. best buy shares gained almost 6% to close at $22.20. and, after the closing bell, microsoft said it was taking a $6.2 billion charge in its quarter ended june 30. the non-cash charge involves its online services division and could result in a "loss" for mr. softie for the quarter. microsoft is expected to report earnings on july 19. the stock closed fractionally lower at $30.43 a share. and finally among the most actively traded exchange traded funds. the russell 2000 e.t.f. had the strongest of gains, up 1.2%
and that's tonight's "market focus." >> susie: earnings season for the second quarter gets going next monday, and our next guest says companies will have to report strong numbers to win over investors. our "word on the street" tonight: "show me"! joining us now, jill malandrino, editor at thestreet.com. jill, you are a lot like nick colas on earlier in the program, expect canning a slack performance on the s&p just generally on the stock index for the second half of the year. give us your reasons for that forecast. >> i think right now we're
trading in a really high week. if you look back at what we saw over the first six months, excuse me, for the past 12 monthses we're essentially where we were in july of 201 -- what is happening is we are in a market where there is so much uncertainity things are trade soching in tandem with each other but there are opportunitieses out there. i strongly encourage investors to not only diversify in terms of sector outleak but also investment style. not necessarily just going long and having a long-term outlook but being more nimbles a trader and investor. >> susie: and you have some recommendations, two long and also one short. we're going to look at that in a minute but before we get to that, you are saying that companies are going to have to be in a show me phase to convince investors to invest in them. what do you mean by show-me. what do she have to show. >> basically for expectations in terms of earnings are really low. there really isn't much out there. you can't really make your quarter any more by cutting costs. so investors are really
going to look to see if companies have beat on the bottom line viaevenue generation and real growth. so if they are not producing, it is only being made via cost cuts or if they miss even in the slightest, the companies will not get reward for that and get taken down in the market. >> susie: all right. one of the stocks that you are recommending and you have recommended before is ibm. let's take a look at that chart there. the stock is up over the last 52 weeks hitting a high of $208 in april. tell us about why you are such a fan of ibm. >> well, i have liked ibm for a long time. we have talked about this several times in the past fundamental look at its performance in a flat market over 52 weeks it is up just a bit over 12%. even today if you look at the market action t was pretty choppy but ibm had a decent showing. this company returns 74% on its equity versus its peer in the it sector at 21%. it's got a nice healthy management, executing on all cylinders. lots of cash rewarding their investors via share buybacks and taking up the dividend.
this is a name i love in terms growth, capital preservation an income. >> susie: mosaic from the agricultural sector, the stock flat for the year. you think it's going it to pick up. tell us why. >> absolutely. this is a story that we don't talk about. we don't really talk in terms of the agriculture group but if you take away even the drought that we are experiencing now and key global growing regions, i think that q-3, q-4 is really where it will play out in terms 6 relative and historical pricing for this group. we have seen it happen in the past two weeks, the fundamentals and charts point though to that. >> rooney: let's talk about j.c. penney, are you saying short on that is correct sentiment isn't good, tell us more. >> some of the key factors you look at when you make longer-term investmenters are fundamentals in the chart and sentiment is key. we have new management, 7 months out of the gate and they really had a show-me on three key areas, concept, strategy and getting customers into the store and quite frankly they haven't been able to do that. same-store sales on thursday for the retail group and i don't think they will be able to make that camp. do i see a positive
near-term catalyst for jc penny. i think investors have a little bit to ride out there. >> susie: we'll check that when the numbers come out. jill any disclosures to make about these three stocks. >> nope, i'm restricted. >> susie: thanks so much, jill malandrino of thestreet.com and you can also read jill's article on nbr.com. tonight as we continue our "foodie craze" series, we tackle the restaurant industry. americans spend more than half a trillion dollars a year eating out; dining out has become almost a national past-time. diners are savvier and are not shy to share their experiences with others. as diane eastabrook tells us that's providing opportunities and challenges for restaurants. >> reporter: on a sweltering chicago week day, the vibe inside hub 51 is hotter than the temperature outside. the loft-style restaurant in the city's trendy river north neighborhood is packed with hungry urban professionals. >> hub was everything we wanted to eat under one roof.
we were going out for a burger some nights, we were going out for sushi some nights. >> reporter: 29-year-old jerrod melman and his 33-year-old brother r.j. opened hub 51 four years ago. they launched paris club last year and are partners in three other eateries. >> you go into a clothing store and you see, wow that might make a great uniform someday, even if it's not applicable for that or a design within a museum. you see things all the time that kind of connects the dots to making a restaurant. >> reporter: the melmans grew up in restaurants. their father, richard, founded lettuce entertain you enterprises 41 years ago. the company operates and licenses 80 restaurants in eight states including magiannos italian kitchen, shaws crabhouse, and l woods. melman says for him and his sons opening a restaurant today is more challenging than it was in 1971. the competition is tougher, the regulations are tougher, and the customers are tougher. >> i think they've traveled more, they've tried more,
they've eaten many different places, they know their rights. i think it's terrific. i think it's pushed restaurateurs to be better. >> reporter: when the melmans open a restaurant, food comes first. they design the menu, then build a theme around it. the big driver for success is word of mouth and today word travels faster than ever. with websites like yelp, grubstreet, and chowhound you can find just about any restaurant and read a customer review of it. positive reviews can potentially grow business; negative ones can potentially kill it. there's also influence from more traditional media. >> restaurant review show check please airs on pbs stations in six cities. diners dish about their favorite haunts. program creator david manilow says the show can turn a restaurant into an overnight sensation.
>> there's something called "the check please effect" and when the restaurants are on the air i think people have an inherent trust in our brand, so when we feature a restaurant we really drive a lot of traffic. >> reporter: veteran restaurant consultant ronald paul agrees consumers have more power than ever and smart restaurateurs find ways to harness that power. >> we know what good food is, we know what things should look like--presentation is more important than ever. we don't want adequate. we want something better. >> reporter: the melmans, father and sons, think more engaged customers have made the restaurant industry better and them better restaurateurs. >> i think if it's genuine hopefully generally it will connect. we find our places to be pretty authentic. diane eastabrook "n.b.r.," chicago. >> susie: tomorrow on "n.b.r.". our "foodie craze" series continues with a look at the cost of what's on a restaurant's menu. it turns out price and palette affect the choices you have when eating out. then, the supreme court's health care decision may mean more people will get insurance
through medicaid. but, will that ruling raise costs too? and finally tonight, we say happy birthday to wal-mart: the world's largest retailer turns 50 today. sam walton and his wife plunked all of their money into the first "wal-mart discount city" store in rogers, arkansas, back in 1962. today, wal-mart has 2.2 million employees around the globe, over ten thousand stores, and it serves 27 countries. wal-mart stock has split ten times since going public in 1970. accounting for that and dividends, $1,000 invested back then, would be worth over $1.8 million now. that's nightly business report for monday, july 2. have a great evening everyone. we'll see you online at: www.nbr.com, and back here tomorrow night. "nightly business report" is brought to you by: